Malaysia's government will pursue plans to build undersea power cables linking Borneo to the mainland even though Malaysian conglomerate Sime Darby has pulled out from the project, a Cabinet minister said Thursday.

Second Finance Minister Nor Mohamed Yakcop said the government would seek new contractors to continue with plans to transport electricity from the Bakun hydroelectric dam in Sarawak state on Borneo.

Borneo and mainland Malaysia are separated by the South China Sea, a gap that at its narrowest is 450 miles (725 kilometers) wide.

"It is not derailed. The project will go on," Nor Mohamed told reporters.

The project is important to ensure adequate power supply in the mainland amid the challenges of rising fuel prices and uncertain supply, he said.

Sime, the world's largest palm oil producer, announced late Wednesday it wouldn't accept a government offer to lay two undersea 700-kilometer cables to transmit power to mainland Malaysia nor take a 60 percent stake in the 2,400-megawatt Bakun dam project.

The two deals, which the company had been discussing with the government since November, "do not fit in with our business strategy," the company said in a statement.

Sime said it would continue its role as contractor to complete the construction of the dam.

Some investors have opposed Sime's venture in the Bakun project, warning it would drain its earnings.

Environmentalists have warned the undersea cables would be unsafe because they would lie across an earthquake-prone region.

There is also concern that electricity transported from Borneo may not be cost effective because of the high cost of laying the cables, estimated to be at least 9 billion ringgit (US$2.8 billion).

"The decision to pull out is positive. The high cost of implementing the undersea cable would make it economically not feasible," Kenanga Research said in a report.

The cost of laying the cable would be as much as building the Bakun dam, which has been controversial from the start, with environmentalists and advocates of Borneo's indigenous people saying it would flood an area the size of Singapore and displace thousands of people.